Matching Supply with Demand:
An Introduction to Operations Management
Gérard Cachon
ChristianTerwiesch
All slides in this file are copyrighted by Gerard Cachon and Christian
Terwiesch. Any instructor that adopts Matching Supply with
Demand: An Introduction to Operations Management as a required
text for their course is free to use and modify these slides as desired.
All others must obtain explicit written permission from the authors to
use these slides.
Slide ‹#›
Lean and Toyota
Slide ‹#›
Assembly
Operations
Exercise
Slide ‹#›
The Role of Labor Costs in Manufacturing:
The Auto Industry
100%
Other
Overhead
Warranty
Quality
90%
80%
70%
Assembly and other
Labor costs
60%
50%
Purchased
parts and
assemblies
40%
Parts and
material
costs
Logistics costs
30%
20%
Material costs
10%
0%
Final
Assembler’s
cost
Including
Tier 1
Costs
Including
Tier 2
Costs
Rolled-up
Costs over
~ 5 Tiers
• While labor costs appear small at first, they are important
- look relative to value added
- role up costs throughout the value chain
• Implications
- also hunt for pennies (e.g. line balancing)
- spread operational excellence through the value chain
Slide ‹#›
Source: Whitney / DaimlerChrysler
Product Requirements
Material costs
Buzzer
Resistor
Light Emitting Diode
Breadboard
Wire
Design is specified by this drawing
Product must function correctly (test: LED blinks 5 seconds)
Aesthetics are welcome, but not considered in the supplier selection
Slide ‹#›
$1.13 per unit
$0.66 per unit
$0.23 per unit
$5.02 per unit
$0.01 per board
Process Requirements
Cut
Wires
Mount
Wires
Mount
Components
Four step worker paced line must be used
Assembly steps have to be performed in the sequence indicated above
Workers work 7 hours a day (this is net of breaks)
Workers cannot be assigned to multiple steps / rotate between steps, etc
One material handler moves parts between stages
Overhead costs of $1000 per day
Your management expects your plant to generate $1000 per day in profits
Slide ‹#›
Inspect
Assignment
20
1. Measure activity times
2. Do cost calculations
3. Submit a sealed bid to me
Slide ‹#›
The IMVP Studies
General Motors Framingham Assembly Plant Versus Toyota Takaoka Assembly Plant, 1986
GM Framingham
Gross Assembly Hours per Car
Assembly Defects per 100 Cars
Assembly Space per Car
Inventories of Parts (average)
Toyota Takaoka
40.7
130
8.1
2 weeks
18
45
4.8
2 hours
Gross assembly hours per car are calculated by dividing total hours of effort in the plant by the total number of cars produced
Defects per car were estimated from the JD Power Initial Quality Survey for 1987
Assembly Space per Car is square feet per vehicle per year, corrected for vehicle size
Inventories of Parts are a rough average for major parts
Slide ‹#›
Lean Tool-box
This set of slides summarizes a set of lean operations tools (there is much more):
1.
Mapping the Process Flow
2.
Identifying sources of wasted capacity
3.
Understanding barriers to flow
4.
Standardization of work / standard operating procedures
5.
Balance resources and have demand drive the process
6.
Overall Equipment Effectiveness / Effective Capacity Utilization
Slide ‹#›
Tool 1: Mapping Out the Process
Non-Referrals
List of tasks generated:
15 min target
Broker fills
out forms
Customer
goes to broker
30 mins
Telephone or inperson
Sales and
marketing
disconnected
from operations
Transfer to
ISC
• Check app
- 55% non-referral
- 45% full referral
• Call broker and provide
list of required docs
• Record on electronic
notepad
• Target 3hr return call for
full referral 24 hrs (based
on arrival time) from nonreferral
Place apps in
in-boxes
•Sorted
•Allocated
•Not true FIFO
Based on auto UW
system
•Declaration signed
•Direct Debit
•Valuation Report
•Etc
Referrals
20 min target
Flags
•Shared Ownership
•Foreign national
•Sale and completion
Not simultaneous
Application
Send Fax
No
answer
•15/20 min target
Computer flags automatically
Pre-Offer
Post-Offer
Call for info
Review Case
13 min target
Lack of a
value stream
perspective
•Request materials
•Check for errors
Large WIP
and long
lead times
Application
complete
Make offer
Completion
of house
Broker gets
paid
Weeks to months
Give Up
Chase Team
•Targets to chase up docs
•(3/7/12/18/28 days)
Phone duty
Call broker if
there are
document
problems
Application
complete
Make offer
Widely varying
demand
Slide ‹#›
Broker
contacts
customer
•Add to
note pad
•Requests
required
information
Phone duty
•Check status
•Review post
•Automatic
•Call broken ???
Call Broker to
speak directly
CPS Team
Materials
submitted
Received via
- Nexus
- PC fax
- Manual fax
Redundant
work
•Review incoming post
•24 hr target to review
•Automatic
•Call broker
Variable
performance
amongst associates
Tool 2: Understand Sources of Wasted Capacity
Poor use of capacity – Waste of the Resource’s time
Overproduction
Transportation
Rework
Over-processing
Motion
The seven sources of waste (Muda)
Potential eighth source of waste:
The waste of intellect
Inventory
Waiting
Not “orthogonal to each
other”
Poor
flow – Waste of Customer’s time
• The first five sources are RESOURCE centric
• You find them by observing / attaching yourself to a resource
• Observation and data collection on the front line is key
Slide ‹#›
MyObserver
Tool 3: Understand the Barriers to Flow :
The Customer’s Perspective
How much time does a patient spend on a primary care encounter?
20 minutes
Driving
Appt.
Parking Check-in
Vitals
Waiting
Check out
Labs Drive home
PCP
Two types of wasted time:
Auxiliary activities required to get to value add activities (result o
Wait time (result of bottlenecks / insufficient capacity) =>“Produc
Inventory: the symptom of poor flow - associated with (a) financing cost
Total
value
Flow Time Efficiency (or
%VAT)
= add time of a unit
unit is in
the process
Slide
‹#› time
Waiting time: opposite side of theTotal
same
coina(Little’s
Law)
Tool 4: Standard Operating procedures /
Quartile Analysis
Activity times by Operator
Call durations
2:00 min.
Operator KB
short
KB
Operator NN
2:30 min.
Operator BJ
3:00 min.
NN
Operator BK
3:30 min.
Operator SD
Operator NJ
4:00 min.
BJ
Operator CT
long
4:30 min.
BK
Low
courtesy
Best Practice
in team
High
courtesy
Courtesy / Friendliness
(qualitative information)
SD
Quartile analysis is an easy tool to identify performance variation
NJ in performance often reflects a poor process standardization
Variation
Slide ‹#›
Tool 5: Balance Resources and
Have Demand Drive the Process
Balance the Line
Staff to Demand
Look for idle time and measure labor utilization
Reduce idle time by:
Staffing to demand (potentially eliminating excess process capacity)
Balancing the line (reduce idle time created by excess capacity relative to bottleneck)
Slide ‹#›
Tool 6: Overall equipment effectiveness (OEE)
100
55
Improvement potential
> 300%
45
30
Total Brea Chang Avail Idling Re- Net Defe Start- OEE
and duce oper cts up
plan k- eaned dow overs able minor d
n
timeSpeed
Spee ting Quality losses
stop- losses
up-Downtime
losses
X
pages d ratetime
timeAvailability rate XPerformance
Quality rate =
(quar
OEE
67 %
55 %
82 % Slide ‹#›
Total paid time
Time in practice
Time booked
For appointments
Time with
patients
Activities that don’t
have to be done by MD
Patients that don’t
have to see MD
Cancelations
Time not
booked
Sick
Vacation
Tool 6: Overall equipment effectiveness (OEE)
True value
add time
Step 1: start with the “book-ends” (very left and very right bar)
Step 2: Include the results from the previous steps
- Wasted capacity
‹#›
- Customer wait timeSlide
(can
show up in the form of cancelatio
Capital One Case: A Structured Approach
Step 1: Map the process and understand the
overall process flow (from beginning to
end)
Step 2:
Do we believe there is an improvement
Step 3: opportunity here?
Tool
Map the process
Sources of Wasted c
Flow Time Efficienc
Understand demand
What overall (system level) targets exist?
What is the status quo relative to this
Step 4: target?
Staff to demand
=> Performance gap
Quartile Analysis
What does the overall target mean for
Step 5: each resource?
Slide ‹#›
What is the current capacity at each
OEE Analysis
The Toyota Production System –
An alternative to traditional mass production
Taylorism: Standardized parts
and work
patterns (time studies)
Moving line ensuring working
at same pace
Process
driven
huge, 1923
rapid
1903
1908
1911 by 1913
1st car
1st Model
F.W.
1st
2.1
T
Taylor
moving
million
machinery
line
vehicles/
Cos
95
with inflexible batch year
t production
0
36
US
290
D/u
0
1916
1926
nit 19
04
Mass production driven
by economies
of scale impossible
– Low production
volume (1950):
GM
3,656,000
– Toyota
1933
1946
1950
1960s
1980s
Founded
Major strike
TransStart of
Supplier
11,000 TPS develop- plants
ment
– Low productivity
(Japan 1/9 of US)
Key
ideaofofresources
TPS:
– Lack
systematic elimination
of non-value-adding
activities
Key idea of Ford: cost
reduction through Source: McKinsey
Slide ‹#›
cheap labor and economies
Toyota Production System: An Overview
Zero non-value added
activities (muda)
8.2
Zero defects, zero breakdowns, zero inventory, zero set-up
Production flow synchronized with demand (JIT)
One-unit-at-a-time flow
Mixed model production (heijunka)
Piece-by-piece transfer (ikko-nagashi)
Match production demand based on Takt time
Pull instead of push
Supermarket / Kanban
Make-to-order
8.4
Quality methods to reduce defects
Fool-proofing (poka-yoke) and visual feed-back
Detect-stop-alert (Jidoka)
8.5
Defects at machines (original Jidoka)
Defects in assembly (Andon cord)
Build-in-quality (tsukurikomi)
Reduce inventory to
expose defects
8.6
Flexibility
Standardization of work
Worker involvement
Adjustment of capacity to meet takt-time
Multi-task assignment (takotei-mochi)
8.7
Reduction of Variability
Quartile Analysis
Standard operating procedures
8.8
Quality circles (Kaizen)
Fishbone diagrams (Ishikawa)
Skill development / X-training
8.9
More details on the Toyota Production System: See chapter in 2nd edition “Matching Supply with Demand”
Slide ‹#›
Assume a 1 minute takt time
7
8
5
4
6
3
1
2
ITAT=7*1 minute
4
1
3
2
ITAT=2*1 minute
Inventory in process
The Impact of Inventory on Quality
Defective unit
Good unit
Buffer argume
“Increase inve
Toyota argume
“Decrease inve
Zero inventory is a really bad idea …
Inventory leads to a longer ITAT (Information turnaround time) => slo
Inventory takes pressure off theSlide
resources
(they feel buffered): demons
‹#›
Just-in Time Process Reduces Inventory and
Drives Quality
Pull: Synchronized production
Pull: Kanban
Authorize
production
of next unit
• Part produced for specific
order (at supplier)
• shipped right to assembly
• real-time synchronization
• for large parts (seat)
• inspected at source
• Visual way to implement a pull system
• Amount of WIP is determined by
number of cards
• Kanban = Sign board
• Work needs to be authorized by demand
Slide ‹#›